The greater fool theory (also called survivor investing) is the belief held by one who makes a questionable investment, with the assumption that they will be able to sell it later to "a greater fool"; in other words, buying something not because you believe that it is worth the price, but rather because you believe that you will be able to sell it to someone else at an even higher price a good example of this theory is the Australian residential housing market.
It is similar in concept to the Keynesian beauty contest principle of stock investing.
Some consider it a valid method of making money in the stock market, particularly momentum investors; however, fundamental investors believe that market participants eventually realize that the price level is too outrageous (too high or too low) and the speculative bubble pops. The greater fool theory relies on market optimism and market momentum concerning a particular stock, an industry, or the market as a whole.
This theory blossomed (pun intended) originally with the Dutch Tulip Bulb Craze in the 1600's- Tulip bulbs brought back from China doubled in price until people were selling their house and life's possessions- To buy ONE TULIP BULB- EVENTUALLY THEY WERE WORTHLESS.
AMR IS BANKRUPT- WILL BE DELISTED SOON AND OPEN ON A GRAY MARKET FOR LESS THAN 10 CENTS. DON'T BE THE GREATER FOOL.
Just adding this to your comments, which are right on. This by investment guru Adam Levine-Weinberg:
This sort of speculation makes no sense whatsoever. Investors holding the stock today are just hoping to flip their shares to somebody more gullible than them in an hour, a day, or a week (hopefully at a better price). But the fact is that the shares are worth the same amount today as they were worth at this time last week: zero dollars and no cents. After the secured creditors assert claims on their collateral and unsecured creditors line up to take whatever they can get, there will be nothing left over for ordinary shareholders. Unless new CEO Tom Horton finds $10 billion stashed away in a couch in the executive suite, the remaining long investors will never see a penny.
I like it, but how to take advantage? If it looks too easy (the old saying), if the trade is too lop-sided etc. I would short RIGHT NOW if I could and so would thousands of others, so we get to stand on the sidelines and watch the shorts (who are right) get decapitated by the Wall Street manipulators.
I agree w/u 100%.... It is a gamble that HOPEFULLY will pay off; NOT an investment.... In my case, I took a chance but SOLD toooooooooooo early,....Missed out on what would have been a GREAT CHRISTMAS for myself and my family....I guess it was not meant for me...Just like when I sold HGSI for $3.35 on a Friday. On Monday it reached $13.60...I GUESS I SHOULD STAY AWAY FROM THE MARKET...I have NO luck w/it....I AM DONE
Enjoyed your analysis, but it's little consolation. I seriously questioned this stock's ability to get above 50 cents, I chided those posters who said otherwise....and look at us now. It's not the same as Tulips, shares can be dumped in a microsecond. Shorting is nearly impossible when the price keeps rising. We've all missed-the-boat on the long side, thankfully my broker is too pathetic to allow easy shorting.